Introduction to Prospectus and Allotment of Securities

The Ministry of Corporate Affairs (MCA), in accordance with the Section 469 of the Companies Act, 2013 released a set of rules. These rules were termed as The Companies (Prospectus and Allotment of Securities) Rules, 2014, released in a notification on 31st of March and brought into execution on the 1st of April, 2014. The rules basically lay down the foundation for guidelines on what information is to be revealed in the prospectus, reports to be set out with the prospectus.

The rules also laid down pointers on dematerialization of securities, offer of sale by members, refund of the application fee, and the return of allotment among many others.

Amendments to Prospectus and Allotment of Securities

On the  7th of August, 2018 the MCA released a notification for amendments to the Companies (Prospectus and Allotment of securities) and made sweeping changes to the rule. Listed below is a brief of the changes made.

  • With Relation to subsection (2) and (3) of section 42 of Rule 14, Companies are prohibited to offer or invite to subscribe to securities through private placement unless the proposals have been approved by the shareholders of the company by a special resolution of all such offers/proposals. Shareholder’s approval annexed to the explanatory statement needs disclosures listed below in the official notification copy.
  • A company can not make offers to subscribe to securities under private placement to more than 200 people in a financial year.
  • A private placement offer cum application letter has to be in an application format with PAS-4  Form, Serially Numbered and addressed specifically to the person for whom it is meant and has to be sent out within 30 days of recording their name.
  • Private Placement offers have to maintained by a company in the form PAS-5.
  • Individuals have to make payments for a subscription to securities from their bank accounts and companies have to keep a record of the bank accounts from which the payments have been made
  • A return of allotment of securities under section 42 shall be filed with the Registrar within fifteen days of allotment in Form PAS-3 and with the fee, as provided in the Companies. Return of Allotment of securities has to be filed with the Registrar within fifteen days of allotment in the Form PAS-3 with appropriate fees and a complete list of allotees along with the disclosures listed in the official notification(copy attached below)
  • Provisions of Sub-rule (2) of Rule 14 will not be applicable to Registered NBFCs and Registered Housing Finance Companies
  • The Form PAS-4 has been replaced by PAS-4 Private Placement cum Application letter.

You can check out the Official Notification from the Ministry attached below for your reference.

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